Below is an interesting article that discusses behavioral economics and some of the consequences of ignoring the way people behave in real life as opposed to the assumptions many economists base their models on. It is adapted from Richard Thaler's upcoming book “Misbehaving: The Making of Behavioral Economics”. Thaler is an economics professor at the University of Chicago.
Unless You Are Spock, Irrelevant Things Matter in Economic Behavior - NYTimes.com"In the eyes of an economist, my students were “misbehaving.” By that I mean that their behavior was inconsistent with the idealized model at the heart of much of economics. Rationally, no one should be happier about a score of 96 out of 137 (70 percent) than 72 out of 100, but my students were. And by realizing this, I was able to set the kind of exam I wanted but still keep the students from grumbling.
This illustrates an important problem with traditional economic theory. Economists discount any factors that would not influence the thinking of a rational person. These things are supposedly irrelevant. But unfortunately for the theory, many supposedly irrelevant factors do matter.
Economists create this problem with their insistence on studying mythical creatures often known as Homo economicus. I prefer to call them “Econs”— highly intelligent beings that are capable of making the most complex of calculations but are totally lacking in emotions. Think of Mr. Spock in “Star Trek.” In a world of Econs, many things would in fact be irrelevant."
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